Since the war in Iraq began on 19 March, the US market has been buffeted by emotions stirred by war news; Stocks jumped when headlines reported good news on the military front and sank when US forces suffered any kind of setback.

There has been plenty of suspense over the past few months. This has created uncertainties in business decisions and resulted in the stalling of economic recovery the worldover.

Even without the war psychosis the global economy has been very fragile. Earlier, we expected that there would be a reasonably robust recovery in 2003. These forecasts of higher growth in the major economies of the world in 2003 have now been reduced.

We can now see clearly the political economy of the US war drive. It represents the desperate attempt to use military means to overcome a worsening economic and social crisis.

The question is how will the Iraq war affect US growth ?

The American stock market is still overvalued. And, currently, there are substantial excess capacities in the world. Accompanied by sluggish growth, such capacities could fuel a recession, raising risks of deflation in some countries, but the extra money for the military puts a floor under the economy; also the US government assumes reconstruction costs could mushroom, even if oil revenues pay for much of the rebuilding, tens of thousands of US troops could be deployed there for a considerable time. At the same time, outlays for these troops and their supplies could provide additional stimulus to the US economy and increase corporate and national security that may even prop up the labor market.

Experts have forecasted several times already that as soon as the USA captures Iraqi oil, the world oil market in its present-day condition will cease to exist.

This statement is not a surprise, because the USA is the world’s largest oil consumer. As soon as it becomes independent of the world oil market (and America will practically obtain this independence after it gains control over Iraqi oil), the market will break down to lonely and helpless exporters.

During the Gulf War in 1991, the USA did not have an oil shortage, so control of Iraqi was not an issue. However 12 years later, where America is facing huge domestic economic problems aggravated in part by an oil shortage, Iraq’s problem with the UN regarding weapons inspections has come as a godsend for US. It has provided it with an excuse to invade Iraq on the excuse of "liberating" the Iraqi people and either installing a puppet regime or taking full control of the country as an administrating power. So both of these options will ensure a continuing supply of cheap oil.

The stark reality is that after months of unfettered inspections by the UN, no weapons of mass destruction have been found and the USA, although constantly insisting that Iraq must disarm, has not produced any evidence to show that there are any weapons of mass destruction in the country.

Iraq is not only the world’s largest black gold reservoir; it was one of the initiators of OPEC. The oil cartel was set up on a conference in Baghdad in September 1960. However, it is clear the tragic symbolism of the present-day situation is not a final verdict on this international organization.

United States government officials have been mute on oil-related issues, sensitive to the perception that the war has been fought not to disarm a rogue government but to control of the second-largest oil reserve in the world! n

Khair Mikkawi is a financial consultant based in Riyadh. He contributed this article to The star